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Activist Investor Litt Targets Aimco Over Plans to Split

Activist Investor Litt Targets Aimco Over Plans to Split

Activist investor Jonathan Litt has come out against Apartment Investment & Management Co.’s plans to split into two public entities and said he would call a special meeting if the real estate company won’t let shareholders vote on the move.

In a letter to the company’s board Tuesday, Litt said he was prepared to file preliminary paperwork by next Monday with regulators to call a special meeting for an advisory vote on the matter.

“What seems clear to us is that the proposed spinoff is not the result of an informed evaluation of all available opportunities to maximize shareholder value, particularly given the extraordinary appetite by private institutional investors for high-quality apartments,” Litt said in the letter, a copy of which was obtained by Bloomberg.

Litt’s firm, Land & Buildings Investment Management, said it owns roughly a 1.4% stake in the company. That creates a significant hurdle for him to call a meeting. Under the company’s bylaws, a special meeting can only be called with the support of investors representing at least 25% of all the eligible votes that could be cast at the meeting.

A representative for Aimco wasn’t immediately available for comment.

In the letter, Litt questioned whether the company had explored other avenues, including a sale, and called the plan a “thinly veiled attempt by management and the board to rid themselves of a decades-long poor track record rather than address the fundamental issues facing the company.”

Litt argued that the two new publicly traded businesses -- a real estate investment trust and a development company -- are unlikely to trade anywhere near the underlying value of the company’s assets. Aimco’s net asset value is $59 a share, according to a June presentation, which is a 78% premium over Monday’s close in New York at $33.12 a share.

The stock rose 2.7% to $34.02 at 9:48 a.m. in New York on Tuesday, giving the Denver-based company a market value of about $5.1 billion.

Analyst Downgrade

Analysts have questioned the merits of the split.

“Aimco may not add incremental value with the pending spinoff of its stable apartment assets from its riskier redevelopment ones, which could keep its multiple discount from narrowing, in our view,” Jeffrey Langbaum, a senior analyst with Bloomberg Intelligence, said in a report on Tuesday.

Aimco shareholders will also be taxed on gains created by the spinoff, he said.

“The restructuring is not value-enhancing and actually adds more complexity, leading to two subpar entities, a higher dividend payout ratio, and significant tax consequences for taxable shareholders which we do not believe is fully appreciated by the market,” Nicholas Joseph, a Citigroup Inc. analyst, said in a note Friday. He downgraded the stock to a sell rating.

The spinoff is expected to close before the company’s annual general meeting. Terry Considine, Aimco’s chief executive officer, said he intends to remain CEO of the newly formed REIT and chairman of both companies.

“The board and management appear to be rushing completion of the spinoff,” Litt said. “By structuring the transaction as a taxable spinoff, the board and management team have conveniently ducked shareholder approval.”

Aimco has said the move would provide investors with a simple and transparent way to invest in the multifamily properties sector through the newly created Apartment Income REIT. About 90% of the company’s apartments would be spun off in the REIT in the form of a taxable dividend under the plan.

The remaining development and redevelopment business, Aimco, would also pursue other value-creating transactions, the company said at the time.

©2020 Bloomberg L.P.